PPL Corporation (PPL), through its U.K. subsidiaries, has agreed to buy E.ON AG’s Central Networks electric distribution business in central England, to further step up the growth of its regulated electricity operations.
PPL Corp. will pay GBP3.5 billion ($5.6 billion) in cash for E.ON’s U.K. assets. The company will also assume GBP500 million ($800 million) in debt and also pay for certain permitted adjustments on intercompany indebtedness through the closing date.
On completion of the latest acquisition, PPL is expected to own and operate the largest network of electricity delivery companies in the United Kingdom in terms of regulated asset value, at a combined GBP4.9 billion ($7.8 billion).
E.ON’s Central Networks is UK’s second-largest regulated electric distributor and serves about 5 million customers in the Midlands area of England. Central Networks conducts its business through Central Networks East plc and Central Networks West plc.
The acquisition of these assets will add to PPL’s existing 2.6 million customer base in England and Wales, through the ownership in Western Power Distribution (WPD), which operates as WPD South West and WPD South Wales.
The WPD and Central Networks service territories are contiguous and significant synergies are expected from the combined operations.
PPL plans to finance the transaction using its committed acquisition financing of GBP3.6 billion ($5.8 billion), which is already in place. Further it said no regulatory or shareowner approval is necessary for the transaction.
PPL and E.ON expect to close the transaction in early April. Assuming that the acquisition closes in April, PPL expects the acquisition to be accretive to its earnings by about 10 to 15 cents per share in 2011. This calls for the earnings forecast for 2011 at $2.50 to $2.75 per share, up from the current $2.40 to $2.60 per share.
In addition, PPL expects the accretive value of the transaction to grow to about 32 to 38 cents per share by 2013.
With this agreement, PPL Corp. eyes swift expansion of its regulated electricity operations such that it enhances shareowner value and is immediately accretive to 2011 earnings and cash flow. The company also remains confident about implementing operational improvements and other efficiencies across its U.K. operations, so that it benefits the customers and contributes additional accretion to earnings in 2012 and beyond.
Based on the expected contributions of the expanded U.K. operations, the company estimates that nearly three-quarters of PPL’s 2013 EBITDA would come from regulated businesses.
With this expansion, PPL Corporation companies will be providing regulated utility services to more than 10 million customers in England, Wales, Pennsylvania, Kentucky, Virginia and Tennessee.
Allentown, Pennsylvania-based PPL Corporation is a diversified utility company, primarily generating and marketing electricity in two key markets − the northeastern and western U.S. The company primarily competes with FirstEnergy Corp. (FE) and Exelon Corp. (EXC).
We maintain our ‘Neutral’ recommendation on PPL shares. However, PPL Corp. currently has a short term Zacks #4 Rank (Sell).
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